Iran-Central Asia Multilateral Trade: Development & Prospects
The development of the INSTC will provide opportunities to increase Iranian-Central Asian trade. We examine the potential opportunities.
By Farzad Ramezani Bonesh
Iran’s approach to Central Asia
In December 1991, Iran was among the first countries to recognize the emerging independent republics in Central Asia, and by mid-1992, it had opened embassies in most of these countries.
By February 1992, the leaders of the five Central Asian republics participated in the ECO Summit in Tehran at the invitation of Iran. The numerous trips of the leaders and high-ranking officials of the Central Asian countries and Iran during the 1990s led to the signing of a large number of economic and trade cooperation agreements.
In fact, the presence of Iranian empires and Iran’s close historical, cultural, and civilizational links with Central Asia, especially in Tajikistan and in cities like Samarkand and Bukhara, has been an opportunity for Iran’s economic diplomacy.
In the past years, as part of Iran’s Look East Policy, Iran considered the development of relations with its Asian neighbors a priority in its foreign policy.
Attention to priorities such as dealing with sanctions and threats, expansion of economic influence, and diversity in foreign policy, have been motivations for Tehran’s economic approach in Central Asia.
Over the past year, we have witnessed the visit of Ebrahim Raisi, the Iranian head of state to Turkmenistan, Uzbekistan, and Kazakhstan, and the visit of prominent officials of all Central Asian countries, including the Presidents of Tajikistan and Turkmenistan to Iran.
Meanwhile, Iran’s current approach is to provide transit and access for Central Asian countries to other countries, cooperation in oil and gas exports and swaps, the provision of electricity, minerals, and agricultural products, and further negotiations with neighboring countries.
Iran is the main link of the International North-South Transport Corridor (INSTC), or a 7,200-kilometer ship, rail, and road route for moving cargo between India, Iran, Russia, Central Asia, and Europe, which makes costs and routes shorter and cheaper than the traditional route via the Suez Canal.
Therefore, countries have paid special attention to Iran’s economic potential, especially transit and the implementation of the Ashgabat Agreement, a multimodal transport deal aimed at easing the transportation of goods by developing the international transport and transit corridor between Central Asia and the Persian Gulf.
Ashgabat Agreement Countries
In the first meeting between Iran and Central Asian countries, held last autumn in Tehran, the focus was on transit cooperation. Participants decided to increase the transit of goods to 20 million tons per year. That adds another dimension, as multilateral cooperation in the Eurasian Economic Union, ECO, and Shanghai Cooperation Organisation is important for the development of Iran’s multidimensional commercial relations with the region.
Iran – Turkmenistan
Turkmenistan, with about 1,200 kilometers of the common border and 4 road and rail corridors with Iran, is Iran’s gateway to Central Asia. Iran’s previous participation in the construction of economic projects such as the Sarkhs-Mashhad railway line is important.
Four common border crossings, the reopening of another border inspection station for trade, facilitating the issuance of visas for businessmen of the two countries have provided the basis for expanding the volume of bilateral trade relations. Previous disputes led to the end of gas exports to Iran until 2017, but the full restoration of economic relations has been strengthened since last year.
Serdar Bardimohamedov made his second official visit to Tehran as the President of Turkmenistan. In June 2022, a closed set of 9 memorandums including bilateral cooperation in the fields of investment, transportation, transit, trade, economy, science, and technology were signed.
In November 2021, Iran, Turkmenistan, and Azerbaijan signed a natural gas swap agreement, and Iran transfers 1.5 to 2 billion cubic meters of gas from Turkmenistan to Azerbaijan every year.
Iran’s trade with Turkmenistan in the 11 months of the year 2022 amounted to US$435 million dollars and has increased significantly.
Iran – Tajikistan
Iran and Tajikistan have previously carried out joint infrastructure projects in Tajikistan. But after a period of cold relations, the first official visit of Ebrahim Raisi as the president of Iran to Dushanbe changed the relations. Iran also paid attention to the financing of several projects in Tajikistan. Tajikistan is interested in access to Iran’s seaports and transit. The two sides have signed 17 cooperation agreements in the fields such as trade, transportation, energy, education, tourism, and the resumption of direct flights between Tehran and Dushanbe.
Apart from approaches such as increasing direct flights between Tehran-Dushanbe and Mashhad-Dushanbe, Iran-Tajikistan trade reached US$181 million, multiplying by 2.4 times from January to October 2022.
In the past year, relations and visits of bilateral officials between Iran and Kazakhstan have significantly increased. Cooperation agreements in transportation, energy, investment, and tourism, the establishment of joint chambers of commerce and intergovernmental economic commission, a greater presence of the private sector of the two countries, facilitation of visas, development of cargo and passenger transportation between Iran and Kazakhstan have helped the improvement of the two countries relationships.
Also, the annual rail cooperation of moving 5 million tons of goods from Iran and the launch of the first container train from Kazakhstan to Turkey is important in the transit sector.
Kazakhstan has a strategic view on Iranian ports such as Bandar Abbas and Chabahar, and apart from the opening of a consulate in Bandar Abbas in 2018, now the joint use of existing terminals in Iran, and the construction of a Kazakhstan grain export terminal in Bandar Abbas to be completed in 2025 by Kazakhstans’ ‘Semurg Invest’ will increase bilateral trade volumes.
The 2022 bilateral trade between Kazakhstan and Iran increased by 20% over the previous twelve month to reach US$528 million, up from 2021’s US$440 million.
The majority of exports and imports include wheat, barley, beans, cereals, light oil, and Kazakh cotton versus pistachios, dates, iron, and Iranian construction materials. Also, Iranian companies operate in Kazakhstan in the fields of animal husbandry, meat processing, dairy production, and rice cultivation. Iran’s Babak Copper Company (MIDHCO) and Dana Investments are also present in Kazakhstan.
The bilateral cooperation of companies active in the field of mining, knowledge-based and providing technical and engineering services, cooperation understanding regarding the increase of bilateral trade in mining and trade, agriculture, energy, and railways is expected to boost bilateral trade to US$3 billion by 2030.
Iran – Uzbekistan
After 2017, trade cooperation between Iran and Uzbekistan improved. Iran gained access to Uzbekistan’s consumer market, and over the last five years, more than 350 Iranian companies were established in Uzbekistan. This has resulted in increased cooperation with Iran in trade and mutual investments, as well as in transportation.
The two countries are interested in maximizing the usage of each other’s transit potential. In September 2022, 17 agreements in energy, transportation, and agriculture were signed between Shavkat Mirziyoyev, the President of Uzbekistan, and Ebrahim Raisi.
The main focus of economic relations between Iran and Uzbekistan is transportation and logistics, while Uzbekistan’s request to join the Chabahar Agreement has been accepted. That agreement was signed by India, Iran and Afghanistan, and allows Indian goods to reach Afghanistan through Iran. Uzbekistan uses the facilities of Bandar Abbas while the purchase of one of the terminals of Chabahar Port is also being discussed.
Uzbekistan’s exports and imports include traditional textiles, cotton, silk, fruits and vegetables, and chemical fertilizers, compared to plastics, iron, steel, and Iranian machinery.
Iran – Kyrgyzstan
Compared to the other Central Asian republics, Kyrgyzstan is the farthest country, and has the weakest economic links with Iran. That said, Kyrgyzstan signed a ten-year cooperation agreement with Iran in 2016, and in 2007, and is present in the Chabahar port.
Bilateral trade between Kyrgyzstan and Iran is currently running at just US$80 million dollars, but with plans such as the opening of Kyrgyzstan customs offices in Bandar Abbas, both sides have expressed their desire to increase this figure.
The domestic economic challenges faced between Iran and Central Asian development are the lack of a two-track electric railway to Chabahar port, US sanctions, the lack of stability in Afghanistan, the ambiguity in the issue of the legal regime of the Caspian Sea and how to exploit the accelerator of Iran’s multilateral trade relations with the Central Asian region.
Iran’s foreign trade with Central Asia is less than 2% of Iran’s total foreign trade and is insignificant compared to other competitors such as China and Russia.
However, the possibility of building an oil refinery for Turkmenistan, developing joint oil and gas fields and supplying equipment, resuming gas exports to the east of Iran and increasing swaps with Azerbaijan, exporting electricity from Turkmenistan to third countries through Iran, and implementing free trade agreements with Turkmenistan will increase these regional trade volumes.
Iran’s previous investment in Tajikistan’s economy was in 8th place. But the formulation of the business and economic cooperation plan for 2023 to 2030, the possibility of establishing joint companies in the free trade zones of Tajikistan and providing services by knowledge-based companies, exporting technical and engineering services, digital information exchanges, and the presence of Tajikistan in Iranian ports can lead to more and more economic and commercial relations between the two sides.
Also, increasing flights, creating trade and agriculture joint ventures, an increasing demand for fruits, vegetables, nuts, pistachios, Iranian dates, and reforms and amendments regarding avoiding double taxation, cooperation, and interaction between free trade zones and special economic zones of Iran and Kazakhstan while increasing the flow of goods up to 4 million tons are likely to make the scope Iranian-Central Asian trade far more diverse.
With the implementation of the comprehensive plan for the development of transportation cooperation, strengthening the activities of the joint commission, using the joint corridors of “Central Asia – Persian Gulf”, the growth of trade in the agricultural sector, and the realization of the Ashgabat agreement, the volume of trade between Iran and Uzbekistan will increase from the current US$435 million to over US$1 billion dollars within the next few years assuming INSTC bottlenecks are dealt with.
What is clear is that Iran’s economic relations have increased 13 times. It is expected that with the connection of Chabahar port to Zahedan, the signing of the free trade agreement between Iran and the Eurasian Economic Union, and its implementation, are all ushering in a significant renaissance in mutual trade relations.